1. Define marginal cost.
2. What is meant by contribution? Explain its significance.
3. Explain the following :

• Profit Volume Ratio
• Break Even Point
• Margin Of Safety

1. Explain how marginal costing technique is useful as a decision making tool.
2. Critically evaluate marginal costing technique.
3. Break-down of cost per unit at an activity level of 10,000 units of a company is as follows:

Rs.

Raw materials10

Direct expenses

8

Chargeable expenses

2

Variable overheads

4

Fixed overheads

6

---

Total cost per unit

30

Selling price

32

---

Profit per unit

2

How many units must be sold to break-even?

7 . Tamarai ltd., gives you the following information :

---

Sales

Profit

Rs.

Rs.

Period I1,50,000

20,000

Period II1,70,000

25,000

Calculate:

(a)the p/v ratio.

(b)the profit when sales are rs.2, 50,000 ( c) the sales required to earn a profit of rs. 40,000 ( d) the break-even point.

8. Production costs of selvi enterprises limited are as follows :

Level of Activity

Output (In %Ge)

60%70%80%

Output (In Units)

1,2001,4001,600

------------------------------------------------

Direct Materials

24,00028,00032,000

Direct Labour

7,2008,4009,600

Factory Overheads

12,80013,60014,400

------------------------------------------------

Works Cost

44,00050,00056,000

------------------------------------------------

A proposal to increase production to 90% level of activity is under consideration of the management. The proposal is not expected to involve any increase in fixed factory overheads.

[ Hint: fixed factory overheads rs. 8,000]

9.The following expenses are incurred in the manufacture of 1,000 units of a product in the manufacture of which a factory specialises:

Raw materials2,800

Wages1,900

Overhead charges (rs.4,000 fixed)4,200

10,000 units of the product can be absorbed by the home market where the selling price is rs.9 per unit. There is a demand for 50,000 units of the product in a foreign market if it can be offered at rs.8.20 per unit. If This is done, what will be the total profit or loss made by the manufacturer?

10. The following data are obtained from the records of a factory :

Rs.Rs.

Sales 4000 units @ rs.25 Each1 , 00,000

Less: marginal cost

Materials consumed40,000

Labour charges20,000 Variable overheads12,000

--------

72,000

Fixed cost18 ,00090,000

-------------------

Profit10,000

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It is proposed to reduce the selling price by 20%. What extra units should be sold to obtain the same amount of profit as above?

4.1.3.9Key To Self Assessment Questions ( for problems only )

Work out problem 6 - 10 and show how you came up with the following answers seen below

Q.No.6:7500Units.

Q.No.7:( A) 25%; (B) Rs.45,000; (C) Rs.2,30,000; (D) Rs. 70,000.

Q.No.8:Prime Cost Rs.46,800; Marginal Cost Rs.54,000; Works Cost

Rs.62,000.

Q.No.9:Profit Rs.2,02,000.

Q.No.10:10 ,000 Units.